2011 (11) TMI 782 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 2 lacs made by the Assessing Officer under Section 68 of the Income Tax Act.
2. Deletion of additions made under Section 68 concerning M/s. Hindustan Continental Ltd.
3. Ad hoc disallowance of Rs. 1 lac out of telephone expenses.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 2 lacs under Section 68:
The Revenue challenged the deletion of an addition of Rs. 2 lacs made by the Assessing Officer under Section 68 of the Income Tax Act, arguing that the assessee failed to prove the creditworthiness and genuineness of the transaction with Shri Hanuman Prasad Luhariwala. The assessee contended that the identity, genuineness, and creditworthiness were established. The Tribunal found that the loans were received through account payee cheques, and Shri Hanuman Prasad Luhariwala, who had a PAN and was filing income tax returns, was examined under oath by the Assessing Officer. The Tribunal concluded that the identity and genuineness of the transaction, as well as the creditworthiness, were not in doubt. The Tribunal affirmed the deletion based on precedents from CIT vs. Metachem Industries (245 ITR 160) and Lovely Exports (216 CTR (SC) 195).

2. Deletion of Additions under Section 68 concerning M/s. Hindustan Continental Ltd.:
The Revenue also challenged the deletion of additions made under Section 68, arguing that the assessee failed to prove the identity, creditworthiness, and genuineness of transactions with M/s. Hindustan Continental Ltd. The Tribunal referred to a detailed discussion in the case of M/s. Agrawal Coal Corporation Ltd. & others, where it was held that the identity of M/s. Hindustan Continental Ltd. was not proved at any stage. The Tribunal noted that the assessee failed to produce the creditors and provide satisfactory evidence of their identity and creditworthiness. The Tribunal emphasized that the onus was on the assessee to establish the identity of the share applicants, which the assessee failed to do. The Tribunal reversed the CIT(A)'s decision, concluding that M/s. Hindustan Continental Ltd. was merely a paper company and its identity was not established, thereby allowing the Revenue's appeal on this ground.

3. Ad hoc Disallowance of Rs. 1 lac out of Telephone Expenses:
The Tribunal addressed the issue of the ad hoc disallowance of Rs. 1 lac made out of total telephone expenses of Rs. 12,29,154/-. The Tribunal found that no reason was assigned for making such an ad hoc disallowance by the Assessing Officer. Furthermore, the Tribunal held that since the company is a juristic person, no disallowance of personal nature could be made in the case of a company. Consequently, the Tribunal reversed the orders of the authorities below on this issue and allowed this ground of appeal of the assessee.

Conclusion:
The Tribunal partly allowed the Revenue's appeal by reversing the CIT(A)'s decision concerning the addition under Section 68 related to M/s. Hindustan Continental Ltd. and affirmed the deletion of the addition of Rs. 2 lacs under Section 68 related to Shri Hanuman Prasad Luhariwala. The Tribunal also allowed the assessee's appeal regarding the ad hoc disallowance of Rs. 1 lac out of telephone expenses. This order was pronounced in the open court in the presence of representatives from both sides.